LONDON — Licensing. It was a dirty word in the Nineties, a decade when controlling manufacturing and distribution was paramount for many European luxury goods players. Now it looks as if the business method — once synonymous with Pringle fishing rods and Pierre Cardin cigarette lighters — is back in vogue.
The issue has again leaped to the luxury forefront after the war of words early this month between Tom Ford and Serge Weinberg, chief executive officer of Pinault-Printemps-Redoute, which is the majority owner of Italy’s Gucci Group. Weinberg suggested that PPR might license some of Gucci’s smaller brand names “when it makes sense.” Ford immediately blasted the concept as the opposite of the strategy he and Gucci ceo Domenico De Sole had implemented over the last decade to build the company into a luxury powerhouse.
This story first appeared in the March 25, 2004 issue of WWD. Subscribe Today.
But what the argument overlooked is that brands have long signed licenses — including Gucci. Moreover, companies large and small, from Versace to Jean Paul Gaultier to Lulu Guinness, say licensing in moderation and with strict controls can fortify a business, strengthen a brand — and take a big load off a designer’s mind.
“For me, licensing has never been a dirty word,” said Ralph Toledano, president of the Richemont-owned Chloé, which has licenses for such products as jeans and fragrances. “It’s a marketing tool. You should never license your core activity, but you cannot do everything at the same moment. It’s a question of using it properly.”
The thinking is similar at Versace, where licensed products account for 40 percent of the company’s $488 million, or 400 million euro, wholesale sales volume.
“Today, strategies are much more coherent and global, and the licensed products are in sync with the consumer’s perception of the brand,” said Daniele Ballestrazzi, chief executive ad interim at Versace, which licenses its Versus and Versace Jeans Couture lines as well as its eyewear and tableware.
Licenses for such categories as eyewear, fragrance and watches have always been a fact of life for fashion houses because they require a specific expertise — and often enormous start-up costs. Increasingly, however, designers are beginning to see licensing as a means to diversify the business, rather than a last resort.
Earlier this month, Giorgio Armani signed a licensing agreement with the Austrian manufacturer Wolford AG for a line of hosiery and bodysuits, due to bow for fall. The Armani Group now has a total of five licenses, which generate 43 percent of the group’s wholesale revenues. Armani had wholesale revenues of $2.06 billion, or 1.69 billion euros, in 2002, the latest figures available.
Weinberg made his comments about PPR’s possible strategy for Gucci Group’s brands — which include Alexander McQueen, Stella McCartney, Balenciaga, Bottega Veneta and Boucheron — a few days before Armani signed his deal. Explaining the potential of licensing, Weinberg said, “It would develop a brand’s peripheral products in harmony with its central products. It would reduce investment while widening scope. We would be very attentive to the quality of these products.”
Weinberg’s statement rocked an industry that had become accustomed to the Nineties business mantra of control, control, control, trumpeted by many top players in the luxury field, not just Ford and De Sole but also Bernard Arnault at LVMH Moët Hennessy Louis Vuitton and Patrizio Bertelli at Prada.
“The more you give your brand to other people — and especially licensees and franchisees — the more they will interpret it,” De Sole told WWD in 2000. Indeed, Gucci Group only forged licensing agreements when absolutely necessary — for fragrances and eyewear.
Buying back licenses — or allowing them to expire quietly — was a backbone of De Sole’s and Ford’s strategy for Gucci and Yves Saint Laurent. When the duo arrived at YSL, one of their first initiatives was to cut some 160 licensed products — essentially everything except for jewelry and watches, women’s rtw and shoes.
But Michael Lichtenstein, a Manhattan-based lawyer who specializes in designer licensing, said he was always puzzled by Gucci’s aversion to licensing.
“Licensing parts of the business is a very sensible way for a designer to extend the goodwill of the brand, and multiply the thrust of the company’s income,” he said. “Gucci was over-licensed in the past. As a result the company overreacted, and went in the opposite direction. But Gucci could have easily found manufacturing partners for many of its products.”
Lichtenstein said PPR would be wise to sign licensing agreements for the Gucci Group brands. “I think it would be a sensible decision, and it doesn’t mean they’re going to bastardize the brand. In the end, why should they limit the goodwill of many of their brands to women’s wear alone?”
Most designers who have licenses say control — and cooperation between the partners — is key to making the agreement successful.
Donald Potard, president of Jean Paul Gaultier, said the company has relied on licenses from the start. “We have always functioned as an engineering company — creating ideas and leaving the industrials to their own business. Meanwhile, we supervised the quality of products and distribution.”
Gaultier currently licenses ready-to-wear, knitwear, jeans, fragrances, watches, eyewear and beachwear. It makes jewelry, shoes, leather goods, scarves and ties in-house. “It is evident that for small structures, licenses and franchises are an inexpensive way of expanding quickly,” Potard said, adding it was crucial for outside partners to respect the designer’s image.
Paolo de Spirt, chief executive of Emanuel Ungaro, said it is difficult to generalize about licenses, and added that some of the resistance is attributable to a “snob” factor.
“It very much depends on the licensee’s profile,” he said, hinting that the Paris-based firm is about to add a couple of new licenses to its stable, which already spans ready-to-wear, jeans, bridge sportswear, eyewear, scarves and homeware, among others.
Burberry, one of the hottest brands out there, eliminated some licenses when Rose Marie Bravo joined as chief executive officer but also maintained — and renegotiated — others. In renewing its license with Mitsui in Japan, its largest market, for another 20 years, Burberry rejigged the agreement to gain a better percentage of revenues and greater control over designs. It also has signed licenses for watches, eyewear and fragrances. But in its other key market, Spain, Burberry bought its licensee there and turned it into a wholly owned subsidiary.
Another British brand, Pringle, which has been undergoing a relaunch, initially terminated scores of licenses — from fishing rods in Japan to a clothing agreement with Hartmarx in the U.S. But the company has nothing against licensing per se. Indeed, Pringle retained some key licensing deals, including local manufacturing and distribution agreements in Egypt, India and South Africa.
“Those markets in particular are operating in a different season with a different customer. Mostly, they’re making polo shirts, golf clothing and simple pieces,” said Stuart Stockdale, head of design at the Scottish company. “And we have absolute control over the quality.”
Stockdale said Pringle would absolutely consider future licensing deals. “When you are relaunching a brand, I think you have to raise the product to a certain level, stabilize the brand, and create one identity for the end consumer. Once you’ve done that, you can start putting a system in place that can manage new licenses.”
Lichtenstein, who has been in the licensing business since the Seventies, said the actual wording of licensing contracts has changed little since he started, rather it’s the design houses that have become more responsible.
“Designers have more self-discipline these days, they’re not greedy and they don’t want to milk their brands. They’re looking more at their long-term interests, building the brand over time. They no longer think of licenses as found money, but rather as earned money,” he said.
Standard royalty rates now range from about 7 to 10 percent of wholesale sales. In addition, designers get a six- to seven-figure advance against royalties after the start of the contract, and a similar payment each year.
Lulu Guinness, the London-based accessories designer who licenses everything from parasols and fans to fragrances, said: “We all learned a lot from Pierre Cardin. Designers now know that things can get out of control. But licensing is a great way of getting your name out there without having to make an enormous investment,” she said. She added that she turns down three out of four license proposals; most recently, the no-goes have included lingerie and paint.
However, while designers may increasingly be thinking long-term, their licensing partners are not necessarily doing the same.
“You cannot expect a licensee who has a medium-term contract to limit volume,” said Sidney Toledano, president of Christian Dior Couture, a company that eliminated scores of licenses in the Eighties and Nineties, and only plans to keep the eyewear pact with Safilo. “He will be forced to seek volume wherever he can because of his short-term strategy.”
Toledano added: “For brands like Christian Dior and Chanel, real luxury brands, licensing has too many disadvantages. For a luxury brand which has to develop its unique selling proposition, there’s no choice but to do it yourself. It’s the only way to reach the summit of luxury.”
Dior isn’t the only company standing firm against licensing.
“We don’t like to license because we want to have full control of production and distribution,” said Françoise Montenay, president of Chanel, which only licenses eyewear. “We are very tough.”
Montenay added that the company’s distribution criteria for its eyewear licensee, Luxottica Group, is just as demanding as the criteria for the distribution of its fragrances, which are all produced in-house.
Prada has pursued a similar policy of control. Indeed, the only major license the company has is with Luxottica for eyewear. Indeed, so adamant was Prada about avoiding licenses altogether that its first foray into eyewear was a joint venture with the Italian company De Rigo — a partnership that eventually collapsed.
“Prada firmly believes in the importance of controlling the entire value chain,” said chief executive Patrizio Bertelli. “We oversee everything from production to the sale to the final customer. Only that way can we ensure the quality and proper positioning of our product.”
— WWD Staff